Two more firms pay into split-cap fund

Two more financial firms are to contribute to the fund set up by the Financial Services Authority to compensate investors who lost money in split capital trusts.

Broker Teather & Greenwood and Exeter Asset Management yesterday reached a settlement with the FSA over the affair which has been the City regulator's biggest investigation to date.

A total of 20 firms have now been included in the settlement though the FSA is continuing to investigate two firms and eight individuals in connection with the controversial financial products.

Icelandic-owned Teather & Greenwood is paying £300,000 into the settlement fund but has not been found to have committed any regulatory breaches by the FSA.

EAM, part of the iimia investment house, is paying £1m into the central pool, which stood at £194m before its contribution. It has also not been found to have broken any FSA rules.

A sister company of EAM, Executive Fund Managers, went into administration this year amid fears that it could not afford to cover claims.

The FSA said that EAM had acted as fund manager to a number of financial products - the zero dividend preference shares of Exeter Equity Growth & Income Fund, Exeter Financials Fund and Exeter Smaller Companies Income Fund and the shares of the Progressive Growth Pool of Exeter Selective Assets Investment Trust - whose investors could be eligible for compensation from the fund.

Those products where Exeter Fund Managers was the fund manager are not covered by the compensation pot.

The FSA noted that EAM's contribution to the central pool would have "only a limited effect on the level of recovery for those investors who will be eligible for a distribution from [the central pool]".

Split capital trusts were marketed in the late 1990s as low-risk investments but turned out to be anything but, and ended up largely worthless when the stock market collapsed in 2000.

The compensation scheme is aimed at investors who bought "zero dividend preference shares" as low-risk products and is to be managed by former HBOS finance director Mike Ellis.